Pyramid Saimira Entertainment, a subsidiary of Pyramid Saimira Theatre, has tied up with the UK-based Spize TV, a direct-to-home (DTH) platform to offer the complete suite of the ARY Network channels (ARY Digital, ARY One World, QTV, and The Musik) and also the two B4U Network channels (B4U Movies & B4U Music) in the UK.

While Spize TV’s North bouquet has have channels in Urdu, Hindi, Punjabi, Bangla and Gujarati. The South bouquet has channels in Tamil, Telugu, Malayalam, Kannada, and Sinhalese. Since the soft launch of the bouquet, the channels are available, and the formal commercial launch for viewers will be in April 2008.

SpizeTV is a pan-European direct-to-home TV platform offering Asian and niche content to viewers in Europe. Spize TV is available on the EuroBird-9 (EB9) satellite, which allows viewers to benefit from the 500+ free-to-air channels on the HotBird satellite. Ajoy Khandheria, CEO of SpizeTV (Managing Director, ORG Informatics Ltd.) says “SpizeTV is a very exciting project for our Group to offer niche content on a pan-European basis and are proud to work with Eutelsat to create the EB-9 as a new hot location for the region, and with Pyramid Saimira to capitalize on their extensive content expertise.”

Salman Iqbal, MD of ARY Group says “we are proud to be the anchor tenant on the SpizeTV platform to progress the European distribution of ARY.”

The strong uptrend in farm product prices, mounting pressure to expand farm output and yield and expanding government outlays on agriculture, are all likely to stoke demand for agri-inputs such as fertilisers and crop protection products over the next few years.

The policy environment for domestic fertiliser makers is also likely to turn more conducive in this backdrop. However, the stock may deliver only over a 2-3 year time frame, as the company’s cost and sourcing advantages may pay off only over the medium term. Near-term financials, especially for the March quarter, may be muted as one of the units had temporarily suspended production during this period.

Coromandel Fertilisers, one of India’s leading makers of phosphatic and complex fertilisers, has the scale and distribution reach to capitalise on this trend. The company has managed an annualised growth of 15 per cent in its sales and 32 per cent in net profit over the past five years helped by capex and acquisitions, despite limited pricing power and an unfriendly policy environment. The stock, trading at about eight times its estimated earnings for the current year, at its market price of Rs 117, appears to be a value ‘buy’ in this context.

Starting out as a South-based producer of phosphatic and complex fertilisers and pesticides, Coromandel Fertilisers has acquired significant scale and a pan-India presence through a series of acquisitions. The company’s acquisition of EID Parry’s farm inputs division, phosphate producer — Godavari Fertilisers — and pesticide maker — Ficom Organics — have added manufacturing facilities that are well spread-out to reduce logistics costs and an extensive distribution network for agri-inputs. These have been leveraged to market a wide range of farm inputs spanning fertilisers, crop protection products and micro-nutrients across India.Scale and diversity

In the fertiliser business, the company is India’s second largest phosphate producers, controlling capacities of close to 2.5 million tonnes; this is proposed to be enhanced to 3.3 million tonnes by 2009. Economies of scale allow considerable flexibility and diversity in CFL’s product mix between DAP and various grades of NPK complex fertilisers (12:32:16, 20:20, 10:26:26 and 28:28). CFL’s earnings growth in fertilisers is determined mainly by volumes and product mix changes. Current selling prices are well below production costs, with producers reimbursed for the shortfall through a “concession” (subsidy) determined on the basis of “normative” conversion costs and prices of imported inputs.Strategic sourcing

Though this subsidy regime allows eventual pass-through of major input costs (significant when international prices of sulphur and phosphoric acid have risen 9 and 3 times respectively in a year), late recoveries and under recoveries do tend to exert pressure on the liquidity of domestic manufacturers. CFL, on its part, has made several strategic moves over the past five years to optimise its cost structure. It has secured sourcing of key raw materials such as rock phosphate by acquiring stakes in large global suppliers such as Foskor.

A JV to produce Phosphoric acid has also been flagged off with Groupe Chimique Tunisien. CFL has also acquired, turned around and expanded capacities at Godavari Fertilisers to attain considerable scale; it has also worked with a flexible product mix to take best advantage of the subsidy regime. The company’s cost structure is now among the lowest in the phosphatic/complexes space, which makes it well-placed to compete with imported fertilisers.Favourable twist to policy

Domestic demand for complex fertilisers has been strong over the past three years, on the back of stable prices (fixed by the government) and expanding irrigated area, with the Southern market registering the strongest demand growth. Supplies in the domestic market have been extremely tight as investments in new capacity have not kept pace with demand. Bridging the deficit through imports has become an expensive proposition with global fertiliser prices soaring more than two-fold in the past year.

In this backdrop, the policy on the subsidy and pricing of phosphatic and complex fertilisers is likely to turn more favourable in the years ahead. Implementation of the Abhijit Sen committee recommendations (which proposes pricing and subsidy based on landed cost of imported DAP ) could translate into better margins for low cost, integrated producers such as CFL; it will also make the policy regime more stable and transparent. CFL will also benefit from any transition to nutrient-based subsidies, as this will ensure better offtake of phosphatic fertilisers, relative to urea.

The recent spiral in global fertiliser prices has ensured that landed costs of imported products are well above production costs for efficient domestic producers such as CFL, allowing them a substantial margin of comfort. CFL’s other products offerings within agri-inputs — crop protection and micro nutrients — also offer growth potential. Low-cost manufacture makes CFL a supplier of choice for generic agrochemicals, while micro-nutrients offer significant scope for scaling up given the nascent Indian market.

Indo Tech Transformers is one of the small-cap stocks that witnessed steep declines during the recent sell-off by foreign institutional investors. With strong fundamentals in place, the correction has provided an attractive entry point into the stock.

However, given the volatility seen in the broad markets, investors can consider buying in small lots and use price dips, if any, to accumulate the stock.

Invest with a perspective of two-three years. At the current market price of Rs 515, the stock trades at 9.7 times its expected per share earnings for FY-2009 and 12.5 times its present trailing 12 months earnings. Capacity additions that have gone on stream in February 2008 can be expected to reflect fully in revenues from FY-2009.

While the company has enjoyed price-earnings multiple of over 20 in the past, we believe such valuations were driven more by market momentum than fundamentals.

While the company’s business potential is likely to drive healthy growth, investors may have to temper their expectations on the returns front.Steady demand

Indo Tech Transformers makes a range of power and distribution transformers. The company has fully utilised the proceeds of the IPO (March 2006) towards its plans and has rapidly added capacities. For companies such as Indo Tech, timely expansion moves may be key to capturing orders in a demand-driven market such as the present one. Indo Tech has been doing well on this front with the recent capacity augmentation from 3450 MVA to 7450 MVA.

While the company has not made any significant foray into overseas markets because of capacity constraints, recent capacity additions have opened up opportunities to diversify.

The company has already received orders from the African markets. As these are at present booked in the euro, the risks arising from currency fluctuations may not be as high as with dealing in dollars. Enhanced spending in transmission and distribution segment in these countries has led to higher demand. As a result, Indo Tech’s orders from these countries now carry relatively high profit margins.

While Indo Tech may not significantly ramp up contribution from the export market, the 15 per cent contribution that it hopes to achieve by FY-2009 may be sufficient to strengthen overall profit margins.SEB dependent

Indo Tech’s order-book of Rs 180 crore is likely to convert into revenues in the next 6-7 months. While state electricity boards (SEBs) of Tamil Nadu and Andhra Pradesh account for about 70 per cent of this, Indo Tech has been expanding its list of corporate clients as a de-risking strategy. Interestingly, the company has managed to recover its receivables more quickly than even bigger players such as Emco, despite having SEBs as its biggest clients.

The company has also managed to enter into price escalation clauses with these SEBs. While it has had a smooth sail dealing with SEBs, the risk of delayed payments arising from the cash-strapped and loss-making SEBs does remains a risk factor.

However, on the positive side, the spending warranted by SEBs would ensure that Indo Tech (being a regular supplier) would secure new as well as replacement orders, thus providing a steady stream of projects.

While the order-book has remained healthy for Indo Tech, inflows in the current quarter (ended March) may see some slowdown associated with the delays in tendering process normally seen towards the financial year-end.Superior margins

Indo Tech has always enjoyed higher operating profit margins compared to peers. The company’s raw material as a percentage of sales has been lower than peers, indicating better management of sourcing cost.

For the quarter ended December 2007, OPMs surged to 34 per cent from the 25-28 per cent range. While a better client mix could have contributed to this improvement, the company may also have enjoyed the benefits of lower prices of copper in that quarter.

However, even if copper prices remain sluggish (as suggested by forward contracts now, the company may not always be able to retain the cost benefits. Hence, sustainable OPMs of 28-30 per cent appear more realistic.

The steep correction in the price of Tech Mahindra’s shares over the last several months can be traced more to adverse sentiment towards mid-sized IT companies, than to any material change in fundamentals. This offers an opportunity for investors to consider investments in the stock with a two-year perspective.

At Rs 723, the stock trades at 12 times its current earnings and 10 times its FY-09 earnings. This puts valuations on a par with Tier-2 IT players, though the company’s much larger revenue base and net profit margin (20 per cent) is comparable to Tier-1 IT players. Strong business prospects driven by an established relationship with British Telecom offer scope for capital appreciation.

Tech Mahindra broadly caters to three sets of clientele — telecom service providers, telecom equipment manufacturers and independent software vendors. The company is also working with clients on latest Internet technologies to cover newer delivery standards such as WiMAX.

These three segments, along with associated IT and BPO services, cover the entire gamut of IT/network operations for any telecom company. This makes Tech Mahindra a fully integrated player, a model not easily replicable even by Tier-1 software players, providing it with a significant competitive advantage. The other critical aspect is Tech Mahindra’s focus on the European markets, a critical geography for telecom spending. The client base of Tech Mahindra comprises, among others, AT&T, Motorola, Alcatel-Lucent, Convergys, Vodafone, and O2. Tech Mahindra derives 70 per cent of its revenues from European clientele.

Europe is also the biggest telecom market, home to top service providers and equipment makers (such as Ericsson, Alcatel, Nokia-Siemens) and the largest market for value-added services.

Tech Mahindra already works with some of these players. In the Business Support Systems and Operations Support Systems segment (areas where a lion’s share of telecom-software outsourcing happens), Tech Mahindra is among the top ten players in the world.Business Drivers

Deal wins and strong pipeline: Tech Mahindra has recently won a $350-million, five-year deal with British Telecom Group (BT). This deal is largely for provision of application support and maintenance services and is structured for payment evenly spread over five years, giving sustained revenue visibility in an environment of global uncertainty over IT spends. This being a volume service deal, BT has indicated that a good part of the work is to be carried out offshore, suggesting scope for higher margins. This deal is over and above the $1-billion deal that the company had won from BT in December 2006.

The deal also envisages higher compensation to Tech Mahindra if it betters BT’s standards on certain project metrics. BT has also indicated that there may be more such “multi-hundred million” dollar deals in the offing, which may buoy Tech Mahindra’s prospects.

This apart, AT&T, Tech Mahindra’s second-largest client, has won a chunk of spectrum in the recent auction by the American telecom regulators. This will enable it to enhance its voice and data services delivery and tap new customers.

Other recent deal wins are from mobile virtual network operator (MVNOs), WiMAX providers and select media and entertainment companies. These are spread across West Asia and Europe. These services and geographies are high growth, portending more business for Tech Mahindra.Operational Metrics

The geographic spread is now expanding with US also contributing 20 per cent of Tech Mahindra’s revenues. Revenue concentration (BT being the top client) has been reducing, with BT’s contribution down from 75 per cent levels earlier to 61 per cent now.

Utilisation levels as of December 2007 stood at 69 per cent, much lower than Tier-1 peers. Tech Mahindra may need to hike this level substantially to generate higher volume-driven growth, especially during turbulent quarters.Risks

Attrition at 21 per cent, higher than Tier-1 players, is a key execution risk. Vendor rationalisation process of top clients may mean that large deals could be sliced into smaller ones, affecting deal size and revenues. In this light, Infosys and TCS, in particular, may offer stiff competition to the company.